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13 April 2017

DOC Launches Review of Mainland China’s Non-Market Economy Status

U.S. importers could conceivably see a decrease in typically high antidumping duties on goods from mainland China after the U.S. Department of Commerce signalled its willingness to consider market economy status for that economy. While this is a positive development, the Trump administration is very unlikely to modify its current position on this matter by granting market economy status to the mainland following the review. Interested parties are nonetheless encouraged to submit comments and information on this issue no later than 3 May.

A provision in mainland China’s protocol of accession to the World Trade Organisation allows members of that organisation to use calculations in AD proceedings that are not based on the actual costs of mainland Chinese producers if the producers cannot demonstrate that market economy conditions prevail in their industry. The United States and others have used that provision to automatically assign NME status to goods imported from mainland China, which typically results in higher AD duties than would otherwise be the case. However, the protocol of accession provided for the expiration on 11 December 2016 of a WTO country’s ability to “use a methodology that is not based on a strict comparison with domestic prices or costs in mainland China if the producers under investigation cannot clearly show that market economy conditions prevail in the industry producing the like product with regard to manufacture, production and sale of that product.”

When this provision expired on 11 December 2016, mainland China asserted that WTO members would have to stop using NME-type methodologies altogether with respect to mainland Chinese goods as of that date. The United States and others, however, believe they may continue to use such methodologies as long as the petitioners clearly show that market economy conditions do not prevail in the industry at issue. Beijing sought WTO consultations on this matter with the United States and the European Union on 12 December 2016 but has only requested the establishment of a panel in its dispute with the EU. Beijing’s request was formally approved on 3 April 2017 and the panel will render a decision within six months from the date of appointment of the panellists.

Beijing contends in its dispute with the EU that the EU regulation pertaining to the determination of normal value for NME countries appears to be inconsistent with Articles 2.1 and 2.2 of the Antidumping Agreement as well as Articles I:1 and VI:1 of the General Agreement on Tariffs and Trade 1994. The EU and the United States have both slammed Beijing’s decision to move forward with this dispute, with the United States asserting that mainland China’s argument lacks legal merit and the EU sharply criticising that Beijing is pursuing this case even though Brussels is currently considering a proposal that may result in the withdrawal or amendment of the measures under challenge. Indeed, the EU has described Beijing’s decision as an attack on the “on-going internal legislative process of the European Union" aimed at interfering in internal EU affairs.

In the United States, the DOC has launched an inquiry into whether it should continue to treat mainland China as an NME, as it has in all past AD duty investigations and administrative reviews. This inquiry is being conducted as part of a new AD duty investigation of aluminium foil from the mainland and the DOC plans to announce its final NME determination before its preliminary dumping determination. Comments and information are being specifically requested on the following factors the DOC is statutorily required to consider in making a market/non-market economy determination.

the degree of convertibility of the mainland Chinese yuan

the degree to which wage rates in mainland China are determined by free bargaining between labour and management

the extent to which mainland China permits joint ventures or other investments by foreign firms

the extent of government ownership or control over the means of production

the extent of government control over the allocation of resources as well as price and output decisions of producers

any other factors the DOC considers appropriate

The DOC last reviewed mainland China’s NME status in 2006 and determined to continue to treat the mainland as an NME. The outcome of the current review is not expected to be any different given the unified defence of the U.S. NME methodology by both the Trump administration and Congress. Indeed, even if such methodology were challenged by Beijing at the WTO, it is uncertain whether the administration would abide by an eventual adverse decision by the multi-lateral body given the sensitivity of this issue.

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